Quiz 3

Finals
1. Munn Co. reported the following equity accounts:
Preference share capital, par value P15 2,550,000
Share premium, Preference Share 150,000
Ordinary Share capital, no par, P50 stated value 3,000,000

What is the number of issued and outstanding shares for each class?
Ordinary Preference
a 60,000 170,000
b 60,000 180,000
c 63,000 170,000
d 63,000 180,000

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2. At the beginning of the current year, Cove Co., a closely – held entity, issued 6%
bonds with a maturity value of P6,000,000, together with 10,000 ordinary shares of P50
par value, for a combined cash amount of P11,000,000. If the bonds were issued
separately, they would have sold for P4,000,000 on an 8% yield to maturity basis.

What amount should be reported for share premium on the issuance of the ordinary
shares?

a 7,500,000
b 6,500,000
c 5,500,000
d 4,500,000

318226
3. Beck Co. issued 200,000 ordinary shares when it began operations in 2014 and
issued an additional 100,000 shares in 2015. The entity also issued preference
shares convertible into 100,000 ordinary shares. In 2015, the entity purchased
75,000 ordinary shares to be held in treasury.

On December 31, 2015, how many ordinary shares were outstanding?

a 400,000
b 325,000
c 300,000
d 225,000

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4. Pointer Co. issued all of the outstanding shares for P390 per share in 2015. On
December 31, 2015, the entity reacquired 200,000 shares at P360 per share and
retired them. The entity reported the following shareholders’ equity on same date
before the retirement of the shares:
Retained Earnings 75,000,000
Share Premium 162,000,000
Share Capital, P300 par value, 2,000,000 shares
authorized 1,800,000 shares issued and outstanding 540,000,000

What is the balances of the share premium immediately after the retirement of
the shares?
a 156,000,000
b 150,000,000
c 144,000,000
d 168,000,000
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5. Ray Co. declared a 5% stock dividend on 100,000 issued and outstanding shares
of P20 par value, which had a fair value of P50 per share before stock dividend was
declared. This stock dividend was distributed 60 days after the declaration date.

What is the increase in current liabilities as a result of the stock dividend

declaration?

a 250,000
b 100,000
c 150,000
d 0

3472310
6. Solace Co. declared and distributed 10% stock dividend with fair value of
P1,500,000 and par value of P1,000,000 and 25% stock dividend with fair value of
P4,000,000 and par value of P3,500,000.

What aggregate amount should be debited to retained earnings of the stock

dividends?

a 4,500,000
b 3,500,000
c 5,000,000
d 5,500,000

3472311
7. On January 1, 2015, Coleen Co. had 220,000 P5 par value shares outstanding. On
June 1, the entity acquired 20,000 shares to be held in the treasury. On December
1, when the market price of the share was P20, the entity declared a 10% share
dividend to be issued to shareholders of record on December 16, 2015.

What was the impact of the share dividend on retained earnings?

a 100,000 decrease
b 400,000 decrease
c 440,000 decrease
d No effect

3482312
8. At the beginning of the current year, Flash Co. had retained earnings of
P4,000,000. During the year, the entity reported net income of P2,000,000, sold
treasury shares at a “gain” of P720,000, declared a cash dividend of P1,200,000,
and declared and issued a small share dividend of P60,000 shares with P10 par
value when the fair value of the share was P20.

What is the amount of retained earnings available for dividends at the end of the
current year?

a 3,600,000
b 4,200,000
c 4,320,000
d 4,920,000

3482313
9. Ivy Co, an unlisted entity decided to issue 1,000 share options to an employee in lieu of
many years’ service. However, the fair value of the share options cannot be reliably
measure as the entity operates in a highly specialized market where there are no
comparable entities. The exercise price is P100 per share and the options were granted
on January 1, 2015 when the value of shares was also estimated at P100 per share. On
December 331, 2015 the value of the share was estimated at P150 per share and the
option vested on that date.

What value should be placed on the share options issued for the year ended December
31, 2015?

a 100,000
b 150,000
c 50,000
d 25,000

3852515
10. The employee stock purchase plan of Tripoli Co. specifies that for every P100 withheld
from employee’s wages for the purchase of Tripoli’s ordinary shares, Tripoli Co. contributes
P200. The stock is purchase from Tripoli’s treasury shares at market price on the date of
purchase. The following information pertains to the plan’s transactions for the current
year:
Employee withholding for the year 350,000
Market value of 150,000 shares issued 1,050,000
Carrying amount of treasury shares issued 900,000

What amount should be recognized as expense in relation to the stock purchase plan?

a 1,050,000
b 900,000
c 700,000
d 550,000

3872517
11. Elizabeth Co. granted 100 share appreciation rights to each of the 1,000
employees in January 2015. The entity estimated that 90% of the awards will vest
on December 31, 2017. The fair value of each share appreciation right on
December 31, 2015 is P10.

What is the accrued liability on December 31, 2015?

a 300,000
b 900,000
c 100,000
d 90,000

392262
On January 1, 2015, Planet Co. purchased an equipment for the cash price of P5,000,000.
The supplier can choose how the purchase is to be settled.
The choices are 50,000 shares with par value of P50 in one year’s time, or a cash payment
equal to the market value of 40,000 share on December 31, 2015.
At grant date on January 1, 2015, the market price of each share is P110 and the date of
settlement on December 31, 2015, the market price of each share is P130.

12. What is the equity component arising from the purchase of equipment with share
and cash alternative?
a 500,000 c 600,000
b 400,000 d 0
13. What is the interest expense to be recognized on December 31, 2015 if the supplier
has chosen the cash alternative?
a 600,000 c 800,000
b 400,000 d 0

4052611
On January 1, 2015, Planet Co. purchased an equipment for the cash price of P5,000,000.
The supplier can choose how the purchase is to be settled.
The choices are 50,000 shares with par value of P50 in one year’s time, or a cash payment
equal to the market value of 40,000 share on December 31, 2015.
At grant date on January 1, 2015, the market price of each share is P110 and the date of
settlement on December 31, 2015, the market price of each share is P130.

14. What is the share premium to be recognized on December 31, 2015 if the supplier has
chosen the cash alternative?

a 600,000 c 800,000
b 400,000 d 0
15. What is the share premium on December 31, 2015 if the supplier has chosen the share
alternative?
a 5,000,000 c 4,400,000
b 2,500,000 d 4,000,000

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Answer Key
1. Ordinary Shares (3,000,000/50) 60,000
Preference (2,550,000/15) 170,000 A
2. Cash received 11,000,000
less: Market value of bonds payable 4,000,000
Residual amount allocated to ordinary shares 7,000,000
less: Par value of ordinary shares (10,000 x 50) 500,000
Share Premium 6,500,000 B
3. Total Ordinary Shares Issued ( 200,000 + 100,000) 300,000
Less: Treasury Shares 75,000
Ordinary Shares Outstanding 225,000 D
4. Share Capital (200,000 x 300) 60,000,000
Share Premium - issuance (200,000 x 90) 18,000,000
Cash (200,000 x 360) 72,000,000
Share Premium 6,000,000
Beginning 162,000,000
18,000,000
* See journal entry above
6,000,000
150,000,000 B
5. D
Note: Stock dividend payable is not a current liability but shown as an addition to share capital under shareholders'
equity.
6. 10% stock dividend at fair value 1,500,000
25% stock dividend at par value 3,500,000
Total amount debited to retained earnings 5,000,000 D

7. Outstanding shares (220,000 - 20,000) 250,000

Share dividend (10% x 200,000 x 20) 400,000 B

8. Retained earnings - January 1 4,000,000

Net income 2,000,000
less: Cash dividend 1,200,000
Share dividend (60,000 x 20 1,200,000
Retained earnings - December 31 3,600,000 A

9. Market value share - December 31, 2015 150

Option price 100
Intrinsic value 50
Share option 1,000
50,000 C
10. Market value of shares issued 1,050,000
less: Contribution by employees 350,000
Compensation expense 2015 700,000 C

11. Total compensation (100 x 1,000 x 10 x 90%) 900,000

Accrued compensation - December 31, 2015
(900,000 / 3) 300,000 A

12. Fair value of equipment equal to the cash price 5,000,000

less: Fair value of liability (40,000 shares x 110) 4,400,000
Equity Component 600,000 C

13. Fair value of liability - December 31, 2015

(40,000 shares x 130) 5,200,000
less: Fair value of liability - Januaary 1, 2015 4,400,000
Implied interest 800,000 C
14. Accounts payable 4,400,000
Interest Expense 800,000
Share options outstanding 600,000
Cash 2,500,000
Share Premium 600,000 A

15. Accounts payable 4,400,000

Share options outstanding 600,000
Share capital (50,000 x 50) 2,500,000
Share premium 2,500,000 B